NEWS & RESOURCES

Jennifer Babcock, CPA & Manager 

Retirement planning can often feel like navigating a labyrinth, with rules and regulations changing frequently. In late 2022, the U.S. government made significant updates to retirement laws with the passage of the Secure Act 2.0. With many provisions taking effect in 2023 and beyond, it's essential for Americans to understand these changes to secure their financial future. Let's delve into some of the most notable adjustments.

1. Age for Required Minimum Distributions (RMDs)

One of the most significant changes under the Secure Act 2.0 is the adjustment of the age for required minimum distributions (RMDs). As of 2023, individuals must start taking RMDs at the age of 73, a shift from the previous age of 72. This age will further increase to 75 by 2033. This adjustment recognizes the evolving landscape of retirement and aims to provide individuals with more flexibility in managing their retirement funds.

2. Higher Catch-Up Contributions

Starting January 1, 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions up to $10,000 annually to a workplace plan, and that amount will be indexed to inflation. (The catch-up amount for people age 50 and older in 2023 is currently $7,500.)

Starting in 2026, if you earn more than $145,000 in the prior calendar year, all catch-up contributions to a workplace plan at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement.

IRAs currently have a $1,000 catch-up contribution limit for people age 50 and over. Starting in 2024, that limit will be indexed to inflation, meaning it could increase every year, based on federally determined cost-of-living increases.

3. 529 Education Plans

In 2024, the Secure Act 2.0 introduced a provision allowing amounts held in a 529 plan for a designated beneficiary for at least 15 years to be rolled over into a Roth IRA for that beneficiary (subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000.). However, it's essential to note that the rollover distribution is subject to annual Roth IRA contribution limits. This change presents families with a strategic opportunity to maximize educational savings while also planning for retirement.

4. Employer Matching Contributions

Starting in 2024, employers have the option to make payments to participant accounts that match qualified student loan payments made by employees. This provision aims to alleviate the burden of student loans while incentivizing retirement savings. Eligible employees must make student loan payments at the same rate as elective deferrals and meet other criteria for matching contributions.

5. SIMPLE Plans

The annual contribution limit for employee elective deferral contributions to a Simple IRA plan is $15,500 (2023), and the catch-up contribution limit beginning at age 50 is $3,500 (for 2023). In 2024, the contribution limit for Simple IRA increases the annual deferral limit to 110% of the 2024 Simple IRA plan limit (as indexed) and the catch-up contribution limit at age 50 to 110% of the 2024 Simple IRA plan limit (as indexed) in the case of an employer with no more than 25 employees. These changes provide individuals with more options for retirement savings and employer contributions.

6. Automatic Enrollment

Starting in 2025, new 401(k) and 403(b) plans established after the passing of the Secure Act 2.0 must automatically enroll all eligible employees at a default contribution rate between 3% and 10% of their salary, unless an alternative rate is selected by the employee. The most common default deferral rate for plans with auto-enrollment is 6%, but employers can choose a rate anywhere from 3% to 10%. This auto-enrollment requirement will go into effect on January 1, 2025, giving employers time to prepare and update their plans to comply with new regulations.

Secure Act 2.0 brings changes aimed at enhancing retirement security. From adjusting RMD ages to facilitating catch-up contributions and expanding employer matching contributions, these provisions offer individuals more flexibility and opportunities to save for retirement. Understanding these changes and incorporating them into your retirement planning strategy can help you navigate the complexities of the retirement landscape and achieve your long-term financial goals.